tag:blogger.com,1999:blog-3116074896221609333.post6519676013170889278..comments2017-08-16T11:15:48.904-07:00Comments on Young Money: Just say no to tobacco stocksJameshttp://www.blogger.com/profile/06597727760854955867noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-3116074896221609333.post-25415743715900284222017-07-12T17:36:39.244-07:002017-07-12T17:36:39.244-07:00I know IQOS has been wildly successful in Japan, b...I know IQOS has been wildly successful in Japan, but I wouldn&#39;t extrapolate that to the United States. E-cigarettes are de facto banned in Japan (they can&#39;t be sold with nicotine liquids, defeating the purpose), so IQOS doesn&#39;t have an electronic alternative there they way it will when it launches in the U.S.<br /><br />I also expect innovator&#39;s dilemma to hamper IQOS&#39;s competitiveness: in Japan, heatsticks costs the same as cigarettes, and my guess is that pricing will be similar in the U.S. to protect margins. By contrast, e-cigs can be much cheaper. There are some hobbyists who buy expensive kit and spend more than they would on cigarettes, but the things I&#39;ve read online suggest that the average user saves a lot of money vaping vs smoking (and, presumably, using IQOS).<br /><br />Actualy, we&#39;ve already seen the tobacco incumbents succumb to innovator&#39;s dilemma with their e-cigarette offerings (Blu, Vuse, Vype, etc)--they&#39;re proprietary systems that force users to by high-priced refills in a limited number of flavors, so from the perspective of a serious vaper, they aren&#39;t competitive.<br /><br />I agree with you on taxes, though--my biggest fear w.r.t. e-cigarettes is that as they become more popular, the government will equalize taxes between cigarettes and e-cigs, eliminating a big incentive to switch.<br />Jameshttps://www.blogger.com/profile/06597727760854955867noreply@blogger.comtag:blogger.com,1999:blog-3116074896221609333.post-34995295966126884552017-07-12T14:21:50.290-07:002017-07-12T14:21:50.290-07:00You don&#39;t even mention iQOS...the momentum see...You don&#39;t even mention iQOS...the momentum seen in Japan is impressive for PM and it will eventually be an option in the US too. Since its still tobacco, governments can still tax it...so a win-win for regulators and tobacco companies, if the consumers like itUnknownhttps://www.blogger.com/profile/08155429100020685282noreply@blogger.comtag:blogger.com,1999:blog-3116074896221609333.post-79493247326738755402017-07-11T17:06:48.295-07:002017-07-11T17:06:48.295-07:00I recall at the time many &quot;talking heads&quot...I recall at the time many &quot;talking heads&quot; were arguing that the food portion of the company was completely negated by the potential liability of the tobacco side. Hard to know how the market was actually valuing the food portion back then. Great Unknownhttps://www.blogger.com/profile/00019203949027315413noreply@blogger.comtag:blogger.com,1999:blog-3116074896221609333.post-18748012828161212172017-07-11T08:05:49.058-07:002017-07-11T08:05:49.058-07:00Thanks, that&#39;s a good point--it was only 6x fo...Thanks, that&#39;s a good point--it was only 6x for a few months in early 2000 when old-economy stocks were out of fashion and the litigation risk was really dire.<br /><br />On the other hand, Philip Morris had a large food business at the time, which the market was probably willing to give a higher multiple. So one could argue that if PM/Altria traded at, say, 12x earnings in the early 2000s, and the food biz was worth 15x, then the look-through valuation for tobacco was lower. For comparison, RJ Reynolds separated from Nabisco in 1999 and became a pure-play tobacco co, and it traded between 6x and 11x earnings in 1999-2000.<br /><br />According to this writeup, MO and RJR got really cheap again in early &#39;03 even though the legal situation had started to ameliorate:<br />https://www.valueinvestorsclub.com/idea/Altria_Group_-_MO_Stub/959<br />Jameshttps://www.blogger.com/profile/06597727760854955867noreply@blogger.comtag:blogger.com,1999:blog-3116074896221609333.post-10397881671930729622017-07-11T07:31:36.142-07:002017-07-11T07:31:36.142-07:00Risks to your short thesis: PM buys MO, iQOS gets ...Risks to your short thesis: PM buys MO, iQOS gets approved in US and blows e-cigs out of the water/gains a ton of share.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3116074896221609333.post-13925421442764790232017-07-11T03:20:20.732-07:002017-07-11T03:20:20.732-07:00Good article and I agree that MO is overvalued. Ha...Good article and I agree that MO is overvalued. Having said that, the valuation of 6X in 2000 was an extreme. I remember back then that it was basically a panic that tobacco companies would be going bankrupt shortly. Great Unknownhttps://www.blogger.com/profile/00019203949027315413noreply@blogger.comtag:blogger.com,1999:blog-3116074896221609333.post-20835652754667101832017-07-10T22:17:10.339-07:002017-07-10T22:17:10.339-07:00Thank you.
I&#39;ve read that many vapers--at le...Thank you. <br /><br />I&#39;ve read that many vapers--at least here in the U.S.--use vape shops as a place to hang out and socialize. That seems to confirm what you&#39;re saying, i.e. to the extent that smoking is a result of peer pressure or serves a social function, e-cigs offer the same thing while (as you say) requiring less of a commitment.Jameshttps://www.blogger.com/profile/06597727760854955867noreply@blogger.comtag:blogger.com,1999:blog-3116074896221609333.post-34070883862705238362017-07-10T21:35:01.722-07:002017-07-10T21:35:01.722-07:00Great post. One anecdote: I started smoking when I...Great post. One anecdote: I started smoking when I was probably 13-14, and it took me 10 years to quit. My key takeaway is that it&#39;s *hard* to start smoking. You have to want to do it. For me, it was because my friends all smoked. It&#39;s something you&#39;ve gotta work at. Furthermore, it takes a while to get properly addicted to nicotine.<br /><br />Give kids another option, like e-cigarettes, and I imagine they&#39;ll take it. We would have.<br /><br />@colemanrhawkinsAnonymousnoreply@blogger.com